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Rothschild Quits Bumi to Fight Bakries’ $1.2 Billion Offer

Bumi PLC Co-Founder Nathaniel Rothschild
Nathaniel "Nat" Philip Vic Rothschild, co-founder of Bumi Plc.. and chairman of JNR Ltd. Source: Finsbury Ltd. via Bloomberg

Nathaniel Rothschild, scion of a centuries-old banking dynasty, intensified a feud with Indonesia’s Bakrie family by quitting the board of their joint coal business and vowing to fight “from outside the tent.”

“I am afraid that I have lost confidence in the ability” of the Bumi Plc board, Rothschild, 41, wrote in his resignation letter to Chairman Samin Tan. Shareholders aren’t being treated equally under last week’s $1.2 billion proposal from the Bakries to unwind a two-year deal that created a London share listing for two Indonesian coal companies, he said.

The Bakries made the proposal after investors in the 2010 initial public offering of Rothschild’s Vallar Plc, the precursor to Bumi Plc, saw the drop in the value of their holdings reach as much as 88 percent last month. Bumi Plc said Sept. 24 it had begun an urgent probe into “potential financial and other irregularities” at its Indonesian operations.

The dispute pits Rothschild against one of Indonesia’s most wealthy and powerful families. The Bakrie Group, a palm-oil-to-property empire started in Sumatra in 1942, offered to buy all of the venture’s assets. The proposal was to help resolve “irreconcilable differences” with the future 5th Baron Rothschild and the other founders, according to a letter containing the Oct. 10 approach from the Bakries.

‘Great Regret’

“It would be a disgrace to proceed with, or even to entertain” the approach, given the current investigation, Rothschild said in his letter dated yesterday to Tan, who he said was “determined to drive through the Bakries’ proposal.”

Tan couldn’t be reached for comment by telephone.

“It is a matter of great regret for me that I was a party, with our advisers, to bringing the Bakries to London,” Rothschild wrote.

Bumi Plc gained 1.6 percent to 249.3 pence in London trading today. Vallar sold shares at 1,000 pence apiece in its 2010 IPO.

Last week’s proposal from the Bakries also included a demand that Rothschild return “for cancellation” 16 million shares that he received in Bumi Plc.

“What a disappointment Mr. Nat Rothschild has been to us,” Chris Fong, a spokesman for the Bakrie family, said in a statement. “We hope that he returns all the shares and other benefits that have been awarded to him from this deal.”

Clifford Chance

Bumi Plc said Sept. 24 it hired lawyers for its probe into a $637 million writedown of development funds and exploration assets. The Bakrie Group has retained Clifford Chance LLP in London for legal advice, Fong said today. Rothschild’s decision to quit won’t affect the proposal from the Bakries for Bumi’s assets, he said.

Bumi Plc confirmed Rothschild resigned from the board in an e-mailed statement. The company appointed Rothschild bank to assess the value of the offer, Nick von Schirnding, head of corporate affairs at Bumi Plc, said in a separate statement.

“These are obviously the personal views of Nat Rothschild,” von Schirnding said. “The independent directors are unanimous that a separation should be examined but have not formed a view on value.”

Rothschild, a member of the family that helped bankroll Britain’s war against Napoleonic France, has his main residence in Klosters, Switzerland. He is the only son of U.K. financier Lord Jacob Rothschild, the 4th Baron Rothschild, a former banker and modern-art collector.

Relations Sour

Relations between Rothschild, who owns about 10 percent of the company, and Indra Bakrie began to sour last year after the financier made public a letter to then-Chief Executive Officer Ari Hudaya. In it, he urged a “radical cleaning-up” of PT Bumi Resources, Indonesia’s largest coal exporter, and sought a timetable for the “repatriation of funds deposited with connected parties.”

Tan was made Bumi Plc chairman in March after Rothschild stepped down as co-chairman following a boardroom dispute last year. Tan’s PT Borneo Lumbung Energi & Metal bought half of the Bakries’ 47.6 percent stake in Bumi Plc this year for about $1 billion.

The Bakrie Group has now offered to exchange a 23.8 percent stake in Bumi Plc for 10.3 percent of Jakarta-based Bumi Resources. The group also made a conditional proposal to buy back the remaining 18.9 percent in Bumi Resources in cash by Christmas. In addition, it plans to offer $946 million for Bumi Plc’s 84.7 percent stake in PT Berau Coal Energy Tbk.

Tempting Investors

Accepting the offer “would effectively constitute winding up Bumi Plc,” London-based Nomura Holdings Inc. analyst Patrick Jones said in a note yesterday before Rothschild announced his resignation. “Investors could be tempted to take the offer and crystallize a cash value about 50 percent above Bumi Plc’s current share price.”

In Jakarta, Bumi Resources fell 1.4 percent to 700 rupiah, while Berau Coal Energy dropped 6.3 percent to 225 rupiah.

“Investors are faced with high uncertainties,” said Ikhsan Binarto, an analyst at PT Indo Premier Securities in Jakarta. “They will want to avoid shares related to Bumi and Berau.”

PT Bakrie & Brothers, controlled by Aburizal Bakrie, billionaire and brother of Indra, sold half of their Bumi Plc stake to help pay $1.35 billion in debt owed to Credit Suisse Group AG. Aburizal is the chairman of the Golkar Party of Indonesia. He’s also the 2014 presidential candidate for the nation’s second-biggest political party, which was founded by former dictator Suharto.

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